Nikkei Nears Record High but USD/JPY May Not Follow

The Nikkei 225 is nearing a record high near 72,831.73, but unlike its June rally, the USD/JPY pair may not follow suit this time. The Nikkei surged 2.40% to 69,946.64, clearing its August high and moving within 4% of its all-time peak. However, USD/JPY remains around 157.7, significantly lower than its July peak of 163.97.

Four key factors differentiate this scenario from July's rally. First, the Bank of Japan (BoJ) is tightening at a faster pace, with rate hikes in December, June, and September, shortening the interval from six months to around three months. Second, the Federal Reserve is tightening more patiently, with markets expecting a slower pace of hikes. Third, intervention risk above 160 is now credible, following a joint US-Japan operation in July. Finally, oil prices are high but stable, lacking the shock that previously fueled USD/JPY's rise.

For USD/JPY to return to 164, a fresh oil shock or significant changes in these factors would be necessary. Until then, the Nikkei's strength may not translate into a similar surge for USD/JPY.